Tampa office development reaches inflection point

Demand for new space has surged, prompting many developers to respond to the need.

Tampa’s office market hit an inflection point roughly three years ago.

After years of relative stagnation brought about by last decade’s searing economic recession, white-collar employment growth had begun to surge, pushing the need for office space upward and vacancy down to single digits.

At least part of the push came from an economic transformation involving tech companies and away from the budget-conscious, back-office and call center operations that had dominated rent rolls in previous decades.

Rental rates, meanwhile, which for Class A space have traditionally hovered around — but rarely exceeded — $30 per square foot began climbing, too, though not at a corresponding pace.

The combination meant that it was financially feasible, at least mathematically, for Tampa to construct its first largely speculative, ground-up office building in nearly a decade in the suburban Westshore business district near Tampa International Airport.

Downtown, the drought has been even longer — more than a quarter of a century.

In response, nearly a dozen qualified developers have stepped up with viable plans to construct new office space in Westshore, downtown and the surrounding area.

Taken together, the plans call for more than 1.7 million square feet of new office space to be built — more than the 42-story skyscraper at 100 N. Tampa St. and the 38-story Tampa City Center tower combined.

Proven need

The offerings are as diffuse as Tampa itself.

In downtown, Strategic Property Partners — a joint venture between Tampa Bay Lightning owner Jeff Vinik and Bill Gates’ Cascade Investment LLC — has proposed about 625,000 square feet of new offices in a pair of buildings in the first phase of its $3 billion Water Street Tampa development, which is transforming 53 acres around Amalie Arena and the Tampa Convention Center.

Also downtown, SoHo Capital and Atlanta-based TPA Group have teamed to develop more than 300,000 square feet of office space in the 45-acre Heights mixed-use project, joining the Armature Works retail and co-working project and the 314-unit Pearl Apartments.

The duo’s seven-story Heights Union project was roughly halfway committed even prior to its official groundbreaking last month, to co-working giant WeWork, AxoGen Inc. and contractor DPR Construction.

Adam Harden, a SoHo Capital partner, says he expects the project to be fully leased prior to completion, based on current momentum and interest.

“The tenants that are already in place here prove there’s a need in the market,” says Harden.

In the Westshore area, a trio of new projects have been announced.

Tampa-based Zons Development is planning a 13-story, mixed-use development on land it has owned for more than four years on East Frontage Road. In addition to four floors of office space, the company’s Skyview Plaza will also contain a 138-room Cambria Hotel, retail and restaurant space and parking.

The Hillsborough County Aviation Authority’s proposed Skyview Center, meanwhile, a nine-story office development on the ground of and connected to the Tampa International Airport, will bring 158,000 square feet of office space to market.

Rounding out the three, Cousins Properties’ planned Corporate Center at International Plaza V is designed as a six-story office property adjacent to the developer’s other Westshore holdings.

Elsewhere, Bromley Cos. plans to begin work this summer on a seven-story office project that will be part of the company’s 22-acre Midtown Tampa development between downtown and Westshore.

And in North Tampa, Vision Properties of New Jersey has plans for a six-story office building that will become part of its 71-acre Renaissance Center complex.

New Supply

Each new project is buoyed by the experience leasing the limited amount of new supply that has come online in the area since 2015.

Vision Properties, for instance, began work on a 150,000-square-foot office project within Renaissance Center on a speculative basis early in 2018, only to have the entire building leased to AAA — The Auto Club Group prior to construction ending.

In Westshore, Metropolitan Life Insurance also broke ground in early 2018 on a new 250,000-square-foot office building in its 32-acre MetWest International business park.

Though the 10-story MetWest III had leased some 150,000 square feet to PricewaterhouseCoopers prior to cracking dirt, the consulting firm eventually expanded to lease the entire building.

Higher rental rates haven’t hurt developers, either. Each of the new suburban projects is commanding rental rates in the $40s per square foot, as is Heights Union. Water Street Tampa’s asking rates for its planned office towers, however, are projected to be even farther above the traditional market, in the mid-$50 per square foot range.

Westshore rents in the first quarter of this year rose to their highest level ever, at $33.59 per square foot, a 6.5% gain year-over-year, according to commercial real estate broker Cushman & Wakefield.

Of course, few of the proposed projects are currently yet under construction, leaving developers proverbial wiggle room to shelve projects if conditions change. To date, only Heights Union, SPP’s loft-style Sparkman Wharf and MetWest III are under construction, though at roughly 730,000 square feet, new office development now stands at its highest level since the third quarter of 2008, Cushman & Wakefield notes.

Each also has lined up tenants, though Sparkman Wharf to date has just a lone commitment of 9,500 square feet to accounting firm RSM US LLP.

Much of the construction is offset, of course, by the more than 469,000 square feet of new leasing activity that occurred in Tampa in the initial three months of the year.

“There’s been a lot of pent-up demand in the Tampa market,” says Claire Calzon, an executive managing director of office services in Tampa for Colliers International Tampa Bay.

“Vision (Properties) was very successful because of that pent-up demand, and others will be, too. The question now is how much is too much new product?”

SoHo Capital’s Harden says he isn’t worried about the plethora of new projects.

“I’m not concerned about the competition here,” he says. “We’re creating a walkable, viable area that will different than anywhere else. Water Street (Tampa) isn’t my competition, either. They’re an ally. Charlotte, Austin, Fort Lauderdale — that’s our competition.

“But we’re putting in a higher effort here, and I think tenants can discern that quality, and we’re taking the long view at the Heights,” Harden adds.

Calzon says she isn’t overly concerned about the number of projects, the collective square footage being proposed, nor the overall lack of leasing activity to date in Tampa, either.

“Tampa has historically never been much of a pre-leasing market,” she says. “Developers have had to come out of the ground first before they get real traction and attention, and I think that’s the case now, too.”

But she cautions that if all of the projects proposed reach fruition, Tampa could see the kind of office glut that plagued the city throughout the late 1980s and caused rental rates and occupancy to plummet.

“Can all the new space be absorbed readily? No,” she says. “But if people and business continue flocking to Florida as they have the past several years, significant absorption will occur.”

Still, many of the proposed projects are slated to come online simultaneously, if they come out of the ground at all.

The SoHo Capital/TPA joint venture is expected to deliver its new building next year, as is Cousins’ Corporate Center V project.

In 2021, Skyview Plaza, Skyview Center, Midtown One at Midtown Plaza and 1001 Water St., in Water Street Tampa, are anticipated to debut.

And if business activity continues unabated and the 1.7 million square feet are absorbed in a timely manner?

Not to worry.

SoHo Capital, Zons Development, Strategic Property Partners, Bromley Cos. and Vision Properties already have plans on their collective drawing boards for an additional 1.7 million square feet of new office space in subsequent phases of their projects.